While this has been a mixed year for the biotechnology sector, there have been some clear winners. Celator Pharmaceuticals Inc. (NASDAQ: CPXX) is one such winner. In fact, CPXX is one of the most phenomenal stories in the biotech sector this year. Before it was acquired by Jazz Pharmaceuticals Inc. (NASDAQ: JAZZ) earlier in the year, CPXX returned investors more than 1600% this year.
The phenomenal run in CPXX began in March this year after the company announced top-line results for its lead product candidate VYXEOS. When the company released expanded data for the lead product candidate, shares jumped another 50%. In May this year, CPXX agreed to be acquired by Jazz for more than $30 per share. From just above $1.50 per share to more than $30 per share within a matter of months.
The CPXX success story has had biotech investors searching for similar stories. Fortunately, they can find a potential winner in the Acute Myeloid Leukemia (AML) space. AML represents a significant opportunity. According to data from the National Cancer Institute, in 2015 there were an estimated 20,800 new cases of AML in the U.S. alone. A similar number of AML cases were diagnosed in Europe in the same year. However, currently there are very limited treatment options for patients suffering from AML. In fact, in the elderly patient population, there are no approved treatment options. Considering that 60% of the patients affected by AML each year are elderly, this represents a major unmet need. Indeed, this is the reason why Actinium Pharmaceuticals (NYSEMKT: ATNM) could potentially become the next big thing in the AML space.
Based in New York City, Actinium Pharmaceuticals is engaged in the development of therapies for diseases utilizing its alpha particle immunotherapy platform and other related technologies. ATNM’s pipeline includes Iomab-B and Actimab-A.
Iomab-B combines a monoclonal antibody that targets the CD45 antigen and radioactive iodine-131. CD45 is widely expressed on hematopoietic cells but not other tissues. Due to this broad expression, Iomab-B has demonstrated utility in other groups of patients and other indications as well, including Myelodysplastic Syndrome, Acute Lymphoblastic Leukemia, Hodgkin’s Disease and Non-Hodgkin Lymphoma.
In June, Actinium initiated a pivotal Phase 3 clinical trial for Iomab-B. The Phase 3 trial, SIERRA, is a multi-center, randomized, controlled study that will enroll 150 patients and it is designed to evaluate if Iomab-B followed by a bone marrow transplant can increase durable Complete Remission (dCR) rates at 6 months compared to physician's choice of chemotherapy followed by a bone marrow transplant or other treatment modaltiies with curative intent.
Commenting on this major milestone, Sandesh Seth, Executive Chairman at Actinium, said last month that there are currently no approved therapies for elderly patients with relapsed or refractory AML and more often than not these patients cannot receive a bone marrow transplant due to the intense nature of the preparative regimens required. According to Seth, Iomab-B represents a potentially new treatment paradigm in bone marrow transplantation of elderly relapsed or refractory AML patients as it is both an induction and conditioning agent that provides safer and potentially curative outcome from bone marrow transplant.
How big is the commercial opportunity for ATNM with its Iomab-B in AML? Considering that there are no approved treatment options for elderly patients in AML, the opportunity could be significant. Remember that Iomab-B has been granted an Orphan Drug designation by the FDA. This provides ATNM with pricing power. Assuming treatment cost of $100,000, which is quite common for Orphan drugs, in the U.S. alone, the market opportunity for Iomab-B is approximately $1.2 billion. Europe also represents a similar opportunity. Even based on conservative forecasts of penetration rate of 50% and market share of 50%, Iomab-B has the potential to generate $600 million in revenue in the U.S. and EU. Remember that the drug has demonstrated utility in other groups of patients and other indications as well, including Myelodysplastic Syndrome, Acute Lymphoblastic Leukemia, Hodgkin’s Disease and Non-Hodgkin Lymphoma. So the commercial opportunity with Iomab-B could be much bigger. And remember that the estimates in AML are also conservative.
Despite Iomab-B’s significant potential, Actinium Pharmaceuticals shares are currently languishing at around $1.75. One of the reasons why ATNM shares have struggled is because of the sell-off in the biotech sector at the start of this year, which in particular hurt the small cap space. But with the initiation of SIERRA, ATNM is now on track with its pipeline. The market therefore is significantly undervaluing ATNM.
The other reason of course is dilution risk. ATNM ended Q1 with just above $22 million in cash. Given the company’s cash position, current burn rate and the fact that SIERRA has now been initiated, a dilutive secondary offering is in the cards. The problem for ATNM is that the current market conditions are not the best for secondary offerings. Indeed, several biotech secondary offerings have been priced at discount. Meanwhile, since April, several biotech IPOs have been withdrawn.
Despite the dilution risk, ATNM is attractive. This is because of the significant potential upside. Based on the conservative sales estimate noted above and a multiple of just 2x sales, which is well below the average for the biotech sector, ATNM’s valuation comes to around $1.2 billion. ATNM currently has a market capitalization of just above $83 million. While there is significant dilution risk, given the upside potential, ATNM offers a favorable risk/reward profile at current levels.
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